When you buy wood, you pay for it
BY MARK KANE/BLOOMBERG EDITORIALS The wood products market has been a particularly lucrative for big companies, but some investors are also finding the trend a little strange.
While investors have grown wary of companies like China’s Hunan Forestry, which is struggling to keep up with demand, many others are betting on wood products that are cheaper and have higher yields than traditional forestry products.
The big brands have become increasingly comfortable with the idea of wood products because the industry is growing at a faster pace than the rest of the economy, said Michael Clements, chief investment officer at Woodland Partners, a private equity firm that invests in companies that grow trees.
The market is growing so fast that a lot of those companies don’t have to invest the capital to make sure they can stay competitive, he said.
For example, in the first quarter of 2018, Woodland sold $5.5 billion worth of products, according to data compiled by Bloomberg.
That included $1.5 million worth of wood pellets, which are used to make furniture.
The same quarter in 2018, the company sold $3.4 billion worth.
The demand for wood products has helped the industry keep up its pace, Woodlands shares rose 0.5 percent in midday trading on Friday.
The company also sold wood pellets at an average of $3 per ton, up from an average price of $1 per ton in the second quarter.
The price premium is a result of the fact that wood products are more expensive than traditional wood products like pine and fir, said Jim O’Hara, chief economist for Woodland.
It also means that there’s more demand for traditional wood.
For instance, when a company makes wood products with high levels of carbon dioxide, a greenhouse gas that can contribute to global warming, that can help offset some of the cost, O’Lara said.
That means wood products make up about 15 percent of the global supply chain, he added.
Woodland’s stock rose more than 12 percent in 2017, but it lost nearly 60 percent in 2018.
Woodland’s total market value has dropped to $14.6 billion from $29.6 million, according the Bloomberg data.
The wood industry is also seeing its share of growth.
The United States is one of the world’s largest wood consumers, according a 2017 report from the Woodland Foundation.
Woodlands sales increased by more than 13 percent in the U.S. between 2016 and 2018, according data compiled for Bloomberg.
The market for wood was a major contributor to Woodland in 2018 despite the industry’s struggles.
Wood is used in everything from furniture to toys and industrial products, and Woodland is known for making wood products.
The wood is also a key ingredient in a range of wood-based products.
Wood products also make up an important component of the supply chain for many other companies.
Companies that use wood for manufacturing products such as paper or plastic also make products using wood.
Wood-based plastics make up around 20 percent of Woodlands product mix, and its wood-derived paints account for nearly 50 percent, according Bloomberg data on the company.
Woodlands also has been seeing growth in its marketshare of the wood product market, according with the latest data from Euromonitor International.
The Woodlands stock has increased nearly 12 percent since the end of 2017.